You might remember this one. In December of 2012, as the nation was wrapped in a debate over the presence of weapons of mass destruction in Iraq, Donald Rumsfeld was asked a question. It came from a reporter during a press briefing at the Pentagon. Video is below but here’s Rumsfeld’s response:

“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know.”

“But there are also unknown unknowns – the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.”

I remember the popular reaction to this quote. It sounded like one of the most absurd ramblings we’d ever heard. This was in an era when The Daily Show and others could easily tee off on the more ham-fisted communiques that came from the White House.

Looking back, I’ve come to admire the expression because it might be one of the more important concepts to understand at the intersection of risk and strategy. There are things we know, the facts, and the things we know that we don’t know. The things we know that we don’t know are risks. Is Person A going to accept my solution? Are we going to have enough gas to make it to the next station? Will this phone drop in price next week?

Plenty of risks all around. With enough thought and foresight, we can protect against those.

But what about the unknown unknowns? The things we truly don’t know that we don’t know? What do we do about that?

When it comes to planning and budgeting, you mitigate for the vast unknowable unknowns by maintaining a reserve. It could be a reserve of time, money, or both. It’s a rainy day fund because “you just never know.”

The key here is that unknown unknowns are things we cannot expect because there has been no prior experience. For countless decades, the western world was convinced that there were no black swans. They had no basis to think otherwise. Until they did.

What flipped this? Information. The discovery of black swans in Western Australia in 1697 obliterated all certainty and the world stood corrected. Prior to that discovery, I wonder what would have happened if a wealthy noble had wagered his entire estate to refute the existence of such creatures?

Anyway, I don’t want to dive too deep into this other than to say that we should all guard against our own confidence. We should put bounds on our certainty just as surely as hedge fund managers put bounds on risk. We should start with small bounds, a’la Herbert Simon’s theory, and expand them with new information to make more unknowns known.

To put it more simply, think about this with the start of any new project. Start small and focus on learning more in quick cycles, expanding the size of the endeavor only as you expand the size of “known quantities”.

This is the idea behind this week’s book: The Lean Startupby Eric Ries. I know that the term “startup” is synonymous with technology but we should really expand the term to mean anything that we begin. A new landscaping business? That’s a startup. A new literacy program? Yep, you’re a startup. A wellness program is a startup, too.

The key here is that while landscaping, literacy, and wellness all have plenty of examples and existing models, you can’t just look around you and say “Well, if it worked for them, it’ll work for me, too.” Recognize that there are things you don’t know and things you don’t know you don’t know.

I’m starting to sound like Rumsfeld now. Yikes.

More to come. Lean is the modern era’s finest gift to management and the essence of striving strategically. We’ve started with something a bit more abstract but it will get honed to a finer point the rest of the week. A few more iterations, you know.